Business Managers On Private Equity

What do business
managers think about

private equity and
venture capital?
Sponsored by
Contents
Foreword
Simon Walker and Antonio Alvarez III 3
About the author 4
Executive summary 5

1 Introduction 6
2 Sampling methodology and survey design 7
3 Survey results 8
3.1 How involved are Private Equity (PE) investors in company decisions? 8
3.2 What are the key benefits or disadvantages of PE ownership? 10
3.3 How does PE ownership compare with public ownership? 11
3.4 What overall impact does PE backing have? 12
3.5 Business expectations over the next twelve months 13
4 Conclusion 14
References 15
Appendix 16
Survey questionnaire
Foreword
Foreword
The management teams of companies backed by private equity and venture
capital, or portfolio company managers, are the unsung heroes of the private
equity world. The BVCA works to ensure their exceptional achievements and
efforts are recognised as an integral part of the private equity model. It is
time to finally ask these managers what they think of it all.
A lot of attention is given to what exactly private equity firms bring to the table through their active
ownership model. While existing research highlights the skill and expertise private equity investors
bring with them, thus far little attention has been paid to what portfolio company managers think
of their private equity partners.
The survey addresses this gap and asks senior business leaders and managers within portfolio
companies with direct contact to the private equity investors about their perceptions of the active
ownership model. It therefore asks those with direct experience of private equity what they think of
it, and the impact private equity investors have on companies’ performance.
The view from the inside is telling. Yet it is often one that is left unspoken. As the survey suggests, the
relationships created between the portfolio company management and private equity investors are
long-lasting and valued. This is demonstrated by the preference shown for private equity ownership
over public ownership amongst managers who have experienced both.
The BVCA works constantly to commend their work and give the portfolio company management
teams a voice within the industry. Unsung and unspoken is not the way to underscore the importance
of portfolio company management. The results of this survey will add much needed nuance to the
active ownership debate at the core of the venture capital and private equity model.
Simon Walker Antonio Alvarez III

CEO Managing Director
BVCA Alvarez & Marsal
November 2010
What do business managers think about private equity and venture capital? 3
About the author
About the author

Colin Ellis is the Chief Economist and Head of Research at the BVCA,
providing commentary and briefing on the economic environment for
members and their portfolio companies. He also oversees the strategic
direction of the BVCA’s Research function, including analysis of trends
and issues affecting the venture capital and private equity industry, and
is involved in building and maintaining relationships with government,
investors, academia and the general public.
Prior to joining the BVCA, Colin was the European Economist at Daiwa Capital Markets, focusing
on the euro area and UK economies. Before that, he worked as a senior economist and manager at
the Bank of England, where his roles included writing the Inflation Report and running the Quarterly
Bulletin, as well as coordinating the Bank’s regional offices. Colin has published a number of research
papers and articles, covering topics ranging from investment and pricing to real-time data. He
frequently speaks at a wide range of conferences and seminars, and is a Visiting Research Fellow at
the University of Birmingham.
Acknowledgements
I would like to thank a number of people for their contributions and assistance in preparing this
report. First and foremost, I am indebted to the BVCA Research team – Mei Niu, Joe Steer, Nicola
Smart and Devash Tailor – for their invaluable help in gathering contact details for potential survey
respondents, as well as checking and verifying the data and results herein.
I would also like to thank all the senior managers who took the time to respond to our survey,
and provide their honest views on Private Equity (PE). The business people who manage and lead
portfolio companies are a vital part of the PE story, and their help and support were essential.
Finally, I would also like to thank the BVCA Research Advisory Board for their helpful comments and
suggestions, and continued support for the BVCA’s Research function as a whole, as well as Antoon
Schneider from McKinsey, whose previous experience in this field was very useful.
cellis@bvca.co.uk
4 What do business managers think about private equity and venture capital?
Executive summary
Executive summary
Private equity (PE) firms make money by investing in and building up
businesses. This ranges from venture capitalists who provide funding
to small companies and start-ups, to large buyout firms that invest in
international companies and brands. Fundamentally, private equity is
about value creation: increasing the value of a company over a finite
period of time, and then selling it to realise the gains made.
In order to boost the value of the companies they invest in, private equity investors work closely with
senior managers of portfolio companies. Yet while there have been several research papers looking
at these types of operational improvements and related issues such as financial structuring, there
has been relatively little work looking at what those senior managers at the portfolio companies
think of their private equity backers and the impact they have on the underlying businesses.
This study addresses that gap, detailing the results of a recent survey of senior business leaders and
managers that asked for their views and experiences of working with private equity investors. The
survey results reveal that:
• General Partners (GPs) are actively involved in the organisations they invest in, particularly
regarding strategic planning and financial structuring. However, they are less hands-on in terms
of the day-to-day management of the business.
• Business leaders highly value this engagement from PE investors, as well as the general expertise
and contacts and networks that PE investors can bring to a business.
• Most business leaders who have experienced both public and private equity ownership appear
to prefer the latter.
• A very high proportion of survey respondents would recommend private equity as potential
ownership model and funding source.
Finally, the survey suggests that PE-backed businesses are well placed to drive economic growth
over the next year, helping support the private sector recovery as the fiscal retrenchment takes hold.
Overall, the survey demonstrates the real and lasting benefit that the private equity industry can
make to the UK economy, as it seeks to genuinely create value and build lasting business in order to
generate returns for investors.
1 Introduction
1. Introduction
Private equity (PE) is all about good business. As an asset class, the private equity industry invests money over
long horizons in businesses all around the world. The fundamental investment model, whether at the venture
capital or large buyout end of the PE spectrum, is for PE investors to provide capital and funding to businesses,
and work to support and increase the value of those companies before selling them on. In order to boost a
company’s value, PE investors typically take a more hands-on approach to company ownership than some
alternatives, such as public ownership where shareholders often congregate only infrequently at annual or
extraordinary general meetings. In contrast to public ownership, private equity investors are closely tied to their
portfolio investments, often serving on the board as non-executive directors and remaining in regular contact
with senior management at the underlying businesses.
This ‘active ownership’ approach enables PE investors to push through 110 private equity deals in Europe over the 10 years to 2005, Acharya et
sometimes radical changes to both the strategy and the underlying al (2010) distinguish between two different types of deals: ‘organic’ deals,
workings of the business. In order to best do this, PE investors often which focus exclusively on internal value creation by boosting margins; and
change management practices, both in terms of staff and operations, ‘inorganic’ deals that focus on M&A activity. The authors find that private
sometimes completely replacing senior management teams. Bloom et al equity managers with operational backgrounds in consultancy or industry
(2010) examine these practices in detail, finding that PE-backed companies generate significant outperformance in organic deals, while PE managers
enjoyed strong people management practices, but even stronger operations with financial backgrounds generate outperformance in deals with an M&A
practices, suggesting that private equity ownership is associated with broad- focus. This suggests that specialisation – PE managers focusing on deals
based operational improvements in management rather than just stronger that draw on their expertise and experience – is an important aspect of
incentives. This suggests that PE investors try to change corporate cultures generating returns for private equity as an asset class. It is also consistent
at portfolio companies in order to put in place long-lasting reforms. Indeed, with PE managers adding value to companies by being more directly
it is critical that private equity General Partners (GPs) – those individuals who involved their operations than public shareholders.
identify and manage investments for private equity houses – succeed in
But while this research sheds light on the strategic and operational
making lasting changes that generate long-term benefits which persist after
improvements that PE managers can make in portfolio companies,
the eventual sale of the business. This is because the fundamental value of
relatively little work has been done to gauge the reaction of portfolio
any company should not be based on past gains that may prove ephemeral,
company leaders to private equity ownership. As such, the BVCA
but instead reflect the expected (discounted) value of future profits (see for
conducted a survey in late-2010 to ask CEOs, Financial Directors and
example Panigirtzoglou & Scammell, 2002).
other senior managers what they thought of private equity, and whether
At the same time, there is some evidence to suggest that different PE it hindered or benefitted their organisation.
managers are better at different types of portfolio investment. Looking at
2 Sampling methodology and survey design
2. Sampling methodology and survey design

Given the likely subjective nature of managers’ views on a complex issue such as private equity backing, we
decided to proceed with a qualitative survey. This was based on surveys that the Bank of England’s Regional
Agents often conduct with their business contacts, in addition to their regular monthly reporting and quantitative
assessments.1 After collecting background information on the company in question – employment, turnover,
and when respondents first experienced private equity – the survey asked respondents to identify either an
overall benefit or disadvantage from private equity backing, or rank GPs involvement or impact on a five-point
Likert scale (see box). We chose to focus on specific questions about aspects of private equity ownership,
ranging from the influence PE investors have on specific company decisions to their overall view of private
equity. The precise wording of the survey questions is available in the Annex.
One issue we faced when designing the survey was how to identify
potential respondents. In order for the survey to be meaningful, we What is a Likert scale?
needed to approach people who had actual hands-on experience A Likert scale is named after psychologist Rensis Likert, who
of working with private equity investors. However, we deliberately proposed a new method for measuring survey respondents’
chose not to approach BVCA members for contacts at their portfolio attitudes (see Likert, 1932). When answering to a Likert-based
companies, to avoid any suggestion that PE managers might ‘cherry pick’ question, respondents specify how strongly they agree or disagree
firms. In the same vein, individual respondents’ details and answers were with a particular statement. For a typical five-level scale, options
kept entirely confidential, to ensure business managers felt free to give might range from strongly disagree (1), through ambivalent (3),
their honest views. To identify potential survey respondents, we used to strongly agree (5). While the results are still qualitative, these
a list of PE-backed companies supplied by BVCA Insurances Services,2 rankings allow responses to be collated and examined in several
and then sought to identify appropriate leaders at those companies by different ways.
researching the individual companies. During September the on-line
survey was sent to individuals at 2119 companies that were backed by
venture capital or other private equity investors, or had been backed in
the past. The survey closed on 1 October after receiving 208 replies, an
overall response rate of 9.8%.
1 For more detail, see Eckersley & Webber (2003) and Ellis & Pike (2005).
2 BVCA Insurance Services provides insurance purchasing benefits to BVCA members and their portfolio
companies.
3 Survey results
3. Survey results
Before examining responses to individual questions, it is useful to consider some background characteristics from the
firms that responded to the survey. Overall, our 208 survey respondents worked at companies with revenues totalling
almost £21bn, with a broad spread from small to large businesses (Chart 1). As some start-up companies were still at
the pre-revenue stage, we also asked about employment: overall, the firms in our survey employed around 200,000
people on a full-time equivalent basis, and here too there was a broad range of firm sizes (Chart 2). These statistics
allow us to examine whether small businesses have a different view of private equity compared with large businesses.
The size of the survey was therefore large enough to offer statistically experience of the GPs at the PE firms, who often sit on portfolio
valid responses. But, as we are interested in individuals’ views, unless companies’ boards. The Likert scale for this question ran from
otherwise stated the results presented herein are not weighted by no involvement (1) to decisions taken by PE investors, rather than
employment (or turnover). company management (5).
The survey respondents also covered a broad range of experience of Unsurprisingly, given the financial investment involved, the area PE
private equity. We asked individuals when they had first experienced investors were most closely involved in was financial structure and
PE, in case those with less exposure to the asset class had different planning of portfolio companies, with 56% of respondents noting a
views, perhaps because they were not yet used to the way GPs work. In heavy influence, and a further 7% reporting that these decisions were
the event, our survey covered individuals who had worked with private actually taken by PE investors (Chart 3). Given the financial expertise
equity backers since the late 1970s and early 1980s, right up to those that some GPs are able to bring to portfolio companies, and the
who had only started working with GPs during 2010. financial arrangements and leverage often required to establish a
controlling ownership in the case of buyouts, it makes sense that PE
Finally, our use of Likert scales throughout the survey allowed us
investors were most engaged with the financial structure underpinning
to construct net percentage balances, based on the responses we
PE-backed businesses.
received. Where we report these net balances, they were constructed
by giving ‘slight’ or ‘marginal’ half the weight of ‘significant’ or ‘strong’ PE investors were also closely involved with strategic goals (Chart 4),
ones. As the Likert scale presents a pre-set quantitative ranking, this and tracking progress against those targets. Over 40% of respondents
process was relatively simple. reported a heavy influence from PE investors, with a further 36% noting
a moderate involvement. This confirms that private equity is an active
form of company ownership and that GPs work very closely with
3.1 How involved are PE investors in company decisions? portfolio companies, including helping to manage businesses through
the recent recession.
The first detailed question in the survey asked how involved PE
investors were in influencing company decisions, to gauge which On a day-to-day basis, private equity investors give management more
areas of business activity they were most actively involved with. freedom to make decisions and get on with the task of generating sales
Typically, involvement is likely to vary depending on the skills and and managing the workforce. General Partners do get involved in crisis
Chart 1: Turnover of respondent firms Chart 2: Number of employees at respondent firms
60 50
50
40
Number of companies
Number of companies
40
30
30
20
20
10
10
0 0
Up to 1 1–10 10–30 30–100 Over 100 Up to 25 25-100 100–300 300–1000 Over 1000
Annual turnover: £mn Employees: Full-time equivalents
3 Survey results
management, with 42% having at least a moderate involvement when These results suggest that, while private equity investors are closely involved
adverse shocks hit businesses (Chart 5). But over a third of managers with the financial structure and overall strategy of portfolio companies –
reported that GPs had no involvement in production, employment or and are able to step in and support management when crises erupt – they
marketing decisions (Charts 6 and 7), and over two-thirds reported that do not exert undue influence over other aspects of the business, giving
GPs were uninvolved with wage bargaining and union issues (Chart 8). company managers more freedom to make day-to-day decisions.
Chart 3: Influence of PE investors on financial structure and planning Chart 4: Influence of PE investors on strategic goal setting and measurement
60 50
50
40
Percentage of respondents
40
30
30
20
20
10
10
0 0
No Some Moderate Heavy Decisions taken No Some Moderate Heavy Decisions taken
involvement involvement involvement influence by PE investors involvement involvement involvement influence by PE investors
Chart 5: Influence of PE investors on crisis management Chart 6: Influence of PE investors on sales and marketing activity
40 50
40
30
30
20
20
10
10
0 0
Chart 7: Influence of PE investors on production and employment Chart 8: Influence of PE investors on wage bargaining and union engagement
50 80
70
40
60
30 50
40
20 30
20
10
10
0 0
3 Survey results
3.2 What are the key benefits or disadvantages of PE ownership? Company managers appear to value three particular qualities from
GPs: general business expertise, contacts and networks in the business
The second survey question asked whether PE ownership was an advantage
community, and engagement on key issues for the business. Furthermore,
or a detriment to the business. In the case of venture capital, this ownership
these benefits were viewed consistently across different-sized businesses.
is typically partial, whereas PE firms often own companies outright in the
Table B and Chart 10 present responses by firm size, splitting out smaller
case of buyouts. The Likert scale for this question ranged from PE backing
companies (those with less than 250 staff) from larger enterprises. The
being a significant disadvantage (1), through no impact (3), to PE ownership
overall differences between the two groups were small, suggesting that
being a significant benefit (5). The ‘disadvantage’ options were included
firm size does not limit the benefits that private equity investors offer
in case portfolio company managers thought that PE investors had a
to companies. (Indeed, weighted and unweighted results were broadly
negative impact – for instance, if the managers thought that PE investors
comparable across the survey as a whole.) The responses clearly indicate
were micromanaging and too involved in the running of the business, or
that private equity does more than just provide finance for its investee
were trying to guide it in the wrong direction. Overall, the net balance of
companies: it also gives managers access to valuable skills that help those
respondents thought that PE ownership was beneficial for their businesses
businesses develop. These skills are likely to be especially valuable for small
(Chart 9), although a notable proportion believed that PE backing had no
businesses, which often do not have the budget to buy-in expertise from
significant impact on their company (Table A).
external consultants and other experts.
Table A: Benefits or disadvantages of PE backing
Significant Slight No impact Slight Significant Net percentage

disadvantage disadvantage benefit benefit balances*
Access to general business expertise 1.0 2.9 20.0 52.2 23.9 47.6
Specific sectoral knowledge and experience 2.9 9.8 43.9 34.6 8.8 18.3
Detailed operational skills eg improving business
3.4 7.3 39.5 41.0 8.8 22.2
processes, financial engineering
Contacts and network in the wider business community 0.5 2.9 20.0 51.2 25.4 49.0
Engagement with company management on key issues 2.9 4.9 13.2 52.2 26.8 47.6
* Slight benefits/disadvantages given half the weight of significant benefits/disadvantages.
Chart 9: Benefits or disadvantages of PE backing Chart 10: Benefits of PE backing by firm size
60 60
Small firms
Larger firms
50 50
Net percentage balances*
Greater benefit Greater benefit

40 40
30 30
20 20
10 10
0 0
General Sector-specific Detailed Contacts Engagement General Sector-specific Detailed Contacts Engagement
expertise influence skills and network expertise influence skills and network
* Slight benefits/disadvantages given half the weight of significant benefits/disadvantages. * Slight benefits/disadvantages given half the weight of significant benefits/disadvantages.
Table B: Benefits/disadvantages of PE backing by firm size

Smaller firms 0.8 1.7 20.2 54.6 22.7 48.3
Access to general business expertise
Larger firms 1.2 4.7 19.8 48.8 25.6 46.5
Smaller firms 2.5 8.4 45.4 31.9 11.8 21.0
Specific sectoral knowledge and experience
Larger firms 3.5 11.6 41.9 38.4 4.7 14.5
Detailed operational skills eg improving business Smaller firms 4.2 8.4 39.5 40.3 7.6 19.3
processes, financial engineering Larger firms 2.3 5.8 39.5 41.9 10.5 26.2
Smaller firms 0.0 3.4 18.5 52.1 26.1 50.4
Contacts and network in the wider business community
Larger firms 1.2 2.3 22.1 50.0 24.4 47.1
Smaller firms 1.7 5.9 11.8 54.6 26.1 48.7
Engagement with company management on key issues
Larger firms 4.7 3.5 15.1 48.8 27.9 45.9
3 Survey results
3.3 How does PE ownership compare with public ownership? 44% thought that private equity was somewhat better. This clearly
indicates that GPs are more active in guiding, influencing and supporting
The survey also sought to compare private equity investment and
businesses than public shareholders, consistent with PE investors having
ownership with respondents’ experience of working in publicly owned
the opportunity to genuinely add value to their investee companies.
corporations. In total, 126 respondents – around 60% of our sample –
had worked in senior roles at public-owned organisations as well as in Looking at the detail for other responses, almost a third of company
PE-backed organisations, giving us an ample sample size with which to managers thought that private equity was less focused on short-term
compare and contrast their experience. The survey asked whether PE financial reporting – which is consistent with GPs taking a long-term
backing compared favourably or not in four areas: short-term financial view of their investments in portfolio companies, and not being overly
reporting; active engagement from company owners; goal setting and concerned with quarterly or annual financial reporting. This reflects
monitoring; and demands from company owners. Our Likert scale for the fact that one of private equity’s big advantages is its ability to step
this question ran from PE being much worse than public ownership (1) back from the regular process of frequent public reports and focus on
through to PE being much better (5). strategic matters and long-term growth. This characteristic is central to
the private equity business model, and company leaders appear to value
Table C presents the full range of replies from survey respondents, with
it highly.
Chart 11 showing net percentage balances. As with the previous survey
question, some respondents thought there was no difference in terms of In addition, company managers also thought that PE investors were
ownership across the four categories in question. But where managers better at goal setting and being more focused in their demands compared
did perceive differences, private equity was generally preferred to public with public market investors. This is consistent with the survey’s earlier
ownership. In particular, 36% of respondents thought that engagement finding that GPs are heavily involved in setting the strategic direction for
with PE investors was much better than for public companies, where portfolio companies, but then give managers space to handle the day-
shareholders can often be remote and unresponsive, and a further to-day running of the business.
Table C: Comparing private equity with public ownership

Less focus on short-term financial reporting deadlines 6.3 11.9 20.6 27.0 34.1 35.3
More active engagement from company owners 2.4 8.0 9.6 44.0 36.0 51.6
Clear goal setting and target measurement 0.8 8.0 31.2 36.8 23.2 36.8
More focused/less diverse demands from company owners 3.2 13.6 20.0 38.4 24.8 34.0
Chart 11: Comparing private equity with public ownership
60
50 Private equity
preferred
to public
ownership
40
30
20
10
0
Less short-term Active Goal setting More focused
reporting engagement and monitoring demands
3 Survey results
3.4 What overall impact does PE backing have? private equity was relatively recent – in particular since 2007, which has
been dominated by the global recession – were also very upbeat about
Having asked for detailed responses over a range of issues, our penultimate
private equity (Table D).
two questions were more focused and direct. The first question asked about
the overall impact of GPs on portfolio companies above and beyond their Private equity is highly valued by the business leaders running PE-backed
financial investment, while the second asked whether respondents would companies, which suggests that GPs do not put undue pressure on managers,
recommend private equity as an ownership model and source of funding. and avoid creating excessive stress and negative sentiment. And given the
Around 90% of respondents stated that private equity backing was beneficial repeated nature of private equity, this should not be surprising – GPs are
to their business, with almost 40% reporting that it was highly beneficial always looking for entrepreneurs who they can back more than once, as well
(Chart 12). as potential CEOs and FDs to lead future portfolio companies. Indeed, private
equity houses frequently re-employ managers from previous portfolio
In light of this positive experience, it was not surprising that senior business
companies in new roles. The finite nature of portfolio investments – and in
managers were overwhelmingly willing to recommend private equity as an
particular the need to maximise returns from the next investment, not just
ownership model and funding source. In total, 85% of respondents would
the current one – gives PE investors strong incentives to build lasting and
recommend private equity to other business leaders, with 46% saying they
valued relationships with business managers, rather than pushing them too
would definitely do so, and another 39% very likely to do so (Chart 13).
far or fast, which would risk making portfolio company managers reluctant to
Interestingly, the strong recommendation was evident despite managers’ collaborate in the future.
varying degrees of experience with private equity. Managers with more
Overall, then, the strong message from the survey is that the individuals
than 10 years’ experience of PE were very positive about the industry,
actually running PE-backed companies value the impact GPs have on the
consistent with lasting relationships being built between business leaders
firms they lead, above and beyond their financial investment.
and GPs. Yet, at the same time, those managers whose first experience of
Chart 12: The non-financial impact of PE on businesses Chart 13: Would business managers recommend PE?
60 70
50 60
50
40
40
30
30
20
20
10 10
0 0
Very Slightly No Slightly Highly Net Definitely Probably Unsure Probably Definitely Net
negative negative impact positive beneficial percentage not not percentage
balance* balance*
* Slight negative/positive responses given half the weight of highly negative/positive responses. * Probably responses given half the weight of definite responses.
Table D: Portfolio company managers’ recommendations of PE, by experience
First experience of PE Definitely not Probably not Unsure Probably Definitely Net percentage
balances*
Pre-2001 0.0 11.5 5.8 32.7 50.0 60.6
2001-2006 0.0 3.6 8.3 45.2 42.9 63.7
2007 onwards 1.8 3.5 10.5 36.8 47.4 62.3
3 Survey results
3.5 Business expectations over the next 12 months The clear message is that senior managers of PE-backed firms are confident
that their companies will grow significantly over the next year. In fact, almost
The final question in our survey changed tack, and asked respondents what
a third of respondents (weighted by FTEs) expected turnover to increase
their expectations were for their businesses over the coming year, in order
significantly, with a further two-thirds expecting a more modest increase in
to gauge the outlook for PE-backed companies. In particular, we asked what
sales (Chart 16). Businesses backed by private equity therefore expect to make
managers expected to happen to company turnover and employment, and
a significant contribution to growth at precisely the time when it is needed,
a range of other economic factors. Chart 14 shows net percentage balances
given the fiscal retrenchment in the public sector.
across all economic factors. Table E and Chart 15 show the same data, but
this time weighted by companies’ employment (in full-time equivalents). We Furthermore, that growth is not set to be inflationary. Managers expect
report these weighted data in this section to offer a sense of the potential only modest increases in wages and selling prices over the next 12 months,
economic impact of PE-backed businesses over the next year. However, in with just 2% of respondents expecting a significant increase in prices, and
practice the difference between the weighted and unweighted responses was virtually no-one expecting strong growth in average wage rates (Table E).
not especially large, consistent with the survey’s other findings. This implies that the expected increase in turnover is likely to reflect genuine
growth in volumes, rather than just price increases, consistent with underlying
Chart 14: Managers’ expectations for their businesses (unweighted responses) inflationary pressures remaining subdued.
The reason PE-backed firms expect to grow strongly, without generating
80
inflation, is because they also expect to employ more people, boost
70 investment in capital infrastructure, and increase their usage of existing
productive capacity. Individually, job creation, investment and capacity
60
Increases expected usage are all expected to rise less strongly than turnover, but the combination
over next 12 months
50 of these three factors – essentially, expanding productive capacity and using
40 existing spare capacity – is consistent with firms being able to meet stronger
demand growth without significantly raising prices, as discussed in Ellis &
30
Turnbull (2007).
20
Overall, companies backed by private equity look ready to help drive the private
10 sector recovery that the UK economy needs, creating jobs and boosting
0 investment. At the same time, there are no signs that prices and wages are set
Turnover Employment Selling Capital Average Use
prices investment wage existing to spiral out of control – inflationary pressures look contained.
rates capacity
* Slight responses given half the weight of significant ones.
Table E: Managers’ expectations for their businesses (responses weighted by FTEs)
Decrease Decrease No change Increase slightly Increase Net percentage

significantly slightly significantly balances*
Turnover 0.2 2.4 0.7 66.2 30.5 62.2
Employment 0.2 6.1 13.8 61.1 18.8 46.1
Selling prices 4.3 15.7 43.2 35.0 1.7 7.0
Capital investment 0.3 6.0 59.1 26.1 8.5 18.3
Average wage rates 0.0 0.4 41.3 58.3 0.1 29.0
Use of existing capacity 0.2 0.1 35.1 50.8 13.8 39.0
* Slight responses given half the weight of significant ones.
Chart 15: Managers’ expectations for their businesses (responses weighted by FTEs) Chart 16: Managers’ expectations for turnover (responses weighted by FTEs)
70 70
60 60
Increases expected
over next 12 months

50 50
40 40
30 30
20 20
10 10
0 0
Turnover Employment Selling Capital Average Use Decrease Decrease No Increase Increase Net
prices investment wage existing significantly slightly change slightly significantly percentage
rates capacity balance*
* Slight responses given half the weight of significant ones. * Slight responses given half the weight of significant ones.
4 Conclusions
4. Conclusions
Private equity firms make money for their investors by backing real businesses, both in the UK and globally.
Fundamentally, the PE firms make money if the value of those businesses rises over the lifetime of the investment,
giving GPs a strong incentive to be actively engaged in the running of those businesses, bringing their own
expertise and experience to bear in order to boost current and future profitability. Despite these incentives, the
active role that PE firms play in the development of the business they back is sometimes ignored.
However, this survey demonstrates that this engagement between public and private equity ownership prefer the latter across a range
PE-backed companies and their private equity backers is a critical of issues, suggesting that private equity may be a good fit for many
part of the private equity business model. The survey shows beyond businesses. And the very high proportion of respondents who would
doubt that venture capital and other private equity investors do not recommend private equity suggests that GPs build lasting and valued
just invest in or buy businesses using leverage, and wait for the tide relationships. Finally, PE-backed businesses look well placed to help
of public equity markets to rise before selling them on at a profit. drive private sector growth over the coming year without generating
Instead, GPs actively support the executives in running and managing higher inflation, helping the economic recovery as the Government
the organisations that private equity invests in. In doing so, they seeks to reduce the fiscal deficit. In summary, this survey demonstrates
bring skills and experience to bear that are highly valued by managers the real and lasting benefit that the private equity industry can make to
of those investee businesses, both in terms of expertise and active the UK economy, as it seeks to genuinely create value and build lasting
engagement. Most business managers who have experienced both business in order to generate returns for investors.
References
References
Acharya, V, Hahn, M and Kehoe, C (2010), ‘Corporate Governance and
Value Creation: Evidence from Private Equity’, mimeo.
Bloom, N, Sadun, R and Van Reenen, J (2010), ‘Do private equity owned
firms have better management practices?’, mimeo.
Eckersley, P and Webber, P (2003), ‘The Bank’s regional Agencies’, Bank
of England Quarterly Bulletin, Spring, pages 92-96.
Ellis, C and Pike, T (2005), ‘Introducing the Agents’ scores’, Bank of
England Quarterly Bulletin, Winter, pages 424-430.
Ellis, C and Turnbull, K (2007), ‘Gauging capacity pressures within
businesses’, Bank of England Quarterly Bulletin, Q1, pages 79-85.
Likert, R (1932), ‘A technique for the measurement of attitudes’, Archives
of Psychology, No. 140, pages 1-55.
Panigirtzoglou, N, and Scammell, R (2002), ‘Analysts’ earnings forecasts
and equity valuations’, Bank of England Quarterly Bulletin, Spring,
pages 59-66.
Appendix Survey questionnaire
Appendix: Survey questionnaire

This annex details the detailed questions that survey respondents were asked.
The survey was carried out on-line using Zoomerang.
Q1. In your experience, how involved are Private Equity (PE) Q4. Overall, how do you rate the involvement of PE investors
investors in terms of influencing company decisions? on your firm, above and beyond their financial investment?
• Strategic goal setting and measurement Respondents were given five options from
1 (very negative) to 5 (highly beneficial).
• Financial structure and planning
• Sales, marketing and promotional activity
Q5. Would you recommend private equity as an ownership
• Production and employment decisions
model and funding source?
• Wage bargaining and union engagement
Respondents were given five options from
• Crisis management 1 (definitely not) to 5 (definitely).
Respondents were asked to rank from
1 (no involvement) to 5 (decisions taken by PE investors).
Q6. Finally, what are your expectations for your business over
the next twelve months?
Q2. Aside from providing equity finance, what do you think • Turnover
are the key benefits or disadvantages of PE ownership and
• Employment
investors?
• Selling prices
• Access to general business expertise
• Capital investment
• Specific sectoral knowledge and experience
• Average wage rates
• Detailed operational skills eg improving business processes,
financial engineering • Use of existing capacity
• Contacts and network in the wider business community Respondents were given five options from
1 (decrease significantly) to 5 (increase significantly).
• Engagement with company management on key issues
1 (significant disadvantage) to 5 (significant benefit).
Respondents were only asked to complete Q3 if they had also previously

worked at senior management level in a publicly owned corporation.
Q3. How does private equity ownership compare with public
ownership, in terms of leading the organisation and
managing shareholders/owners?
• Less focus on short-term financial reporting deadlines
• Active engagement from company owners
• Clear goal setting and target measurement
• More focused/less diverse demands from company owners
1 (PE much worse) to 5 (PE much better).
Notes
Notes
Notes
Notes
The British Private
Equity and Venture
Capital Association
(BVCA)
The BVCA is the industry body and public
policy advocate for the private equity and
venture capital industry in the UK. Our
members come from venture capital, through
mid-market, to private equity/large buyout
houses from all over Britain.
Our voice is one of authority when speaking
for, or negotiating on behalf of, the UK
industry. Our aim is to aid understanding,
clarity and transparency around the activities
of our members, promoting our industry
to entrepreneurs and investors—as well as
Government, trade unions, the media and the
general public.
We provide a growing list of services and best
practice standards for our members across
a spectrum of activities covering a network
of interconnected committees, which focus
on segment-led, legal, technical, regulatory,
investor-led and service-led needs. We also
provide networking opportunities, training
courses, research, publications, public affairs
and communications on behalf of the industry.
With a membership of over 450 firms, we
represent the vast majority of all UK-based
private equity and venture capital firms and
their advisors. The benefits of becoming a
member—whether full or associate—are
wide-ranging and only briefly described above.
Disclaimer
The data provided has been collected from different
sources. BVCA has taken steps to ensure the
reliability of the information presented. However,
BVCA cannot guarantee the ultimate accuracy
of the data and therefore BVCA does not accept
responsibility for any decision made or action taken
based on the information provided.
XX Xxxxxxx
For further information

contact the BVCA
1st Floor North
Brettenham House
Lancaster Place
London WC2E 7EN
T: +44 (0)20 7420 1800
F: +44 (0)20 7420 1801
E: bvca@bvca.co.uk
bvca.co.uk

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Business Managers On Private Equity

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What do business

managers think about

About the author 4

2 Sampling methodology and survey design 7

Simon Walker Antonio Alvarez III

About the author

2. Sampling methodology and survey design

Chart 1: Turnover of respondent firms Chart 2: Number of employees at respondent firms

Table A: Benefits or disadvantages of PE backing

Significant Slight No impact Slight Significant Net percentage

Net percentage balances*

Greater benefit Greater benefit

Table B: Benefits/disadvantages of PE backing by firm size

Significant Slight No impact Slight Significant Net percentage

Table C: Comparing private equity with public ownership

Significant Slight No impact Slight Significant Net percentage

Chart 11: Comparing private equity with public ownership

* Slight benefits/disadvantages given half the weight of significant benefits/disadvantages.

Table D: Portfolio company managers’ recommendations of PE, by experience

* Slight responses given half the weight of significant ones.

Table E: Managers’ expectations for their businesses (responses weighted by FTEs)

Decrease Decrease No change Increase slightly Increase Net percentage

over next 12 months

Appendix: Survey questionnaire

Respondents were only asked to complete Q3 if they had also previously

For further information

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